Late Payment Law in the United States

No federal statute — what fills the gap

Unlike the EU and UK, the United States has no federal statute granting suppliers a right to charge late fees on B2B invoices. The closest analogue is the Prompt Payment Act of 1982 (and 1988/1999 amendments), which applies only when the federal government is the buyer — it sets a 30-day payment requirement and statutory interest at the Treasury rate plus a margin.

For private B2B transactions, late fees are entirely a matter of contract. If your contract specifies a late-payment rate, courts in nearly every state will enforce it (subject to usury caps). If your contract is silent, you cannot demand late fees — you can sue for the principal but not for interest unless your jurisdiction allows pre-judgment interest at a default statutory rate (typically 6-10% per year, varies by state).

The practical implication: write the late-fee clause into every contract. The standard B2B clause is "1.5% per month (18% APR)" — high enough to motivate payment, low enough to clear every state's usury cap.

• No federal B2B statute: commercial late fees are governed by contract law, not statutory law.
• Federal contracts: Prompt Payment Act applies. 30 days to pay; interest accrues automatically at Treasury rate.
• State government contracts: 40-50 states have their own Prompt Payment Acts. Cap and rate vary; usually 30-day payment + 1-1.5% per month.
• Private B2B without clause: no right to charge interest. Sue for principal only.
• Private B2B with clause: enforceable up to state usury cap. 1.5%/mo is universally accepted.

State usury caps — how high can you go

Every state has a usury cap — the maximum legal interest rate. For consumer transactions these are typically 6-12%; for commercial transactions (B2B), most states either have no cap or set it at 12-36% per year. Even in the strictest states (Arkansas at 17% is the lowest commercial cap), 18% APR (1.5%/mo) is enforceable.

A few states require commercial late-fee clauses to be conspicuous (clearly displayed, not buried in small-print boilerplate). Bold the late-fee paragraph in your contracts; California, Florida, and New York have all denied unconspicuous clauses in past cases.

Always write commercial late-fee terms as a percentage rate, never as a fixed dollar amount per month — a flat fee can be ruled an unenforceable "liquidated damage" if it doesn't correspond to actual recovery costs. Percentage rates correspond to time value of money and are universally enforceable.

• 1.5%/mo (18% APR): safe in all 50 states. Universal B2B standard.
• 2%/mo (24% APR): safe in most states with explicit contract language. Verify your state.
• 3%+/mo (36%+ APR): risky. Some states will void as usurious; others will reduce to the cap.
• Make it conspicuous: CA, FL, NY require visible late-fee clauses. Bold or separate paragraph.
• Use percentage, not flat: flat fees may be voided as liquidated damages.

State-by-state highlights for the major economies

California: late fees enforceable up to 10% per year for unsecured loans (Civil Code §3289); commercial transactions are exempt from the cap, so 1.5%/mo is fine. Small claims cap: $10,000 for individuals, $5,000 for businesses. Filing fee scales with claim ($30-$75).

New York: GBL §349 governs late fees; commercial usury cap is 25% per year. Small claims (NYC Civil Court) cap: $10,000. No lawyer required; filing fee $20 for claims over $1,000.

Texas: TPC §301 governs commercial interest; cap is 18% per year for unsecured commercial loans. Justice Court small claims cap: $20,000. Filing fee $54.

Florida: §687.02 caps commercial interest at 18% per year. Small Claims (county court) cap: $8,000. Filing fee $80-$170.

Illinois: ILCS 815 ILCS 205 caps commercial interest at 9% per year unless contract specifies a higher rate (then up to actual usury limit). Small claims cap: $10,000. Filing fee scales.

• California: small claims cap $10K (individuals) / $5K (businesses). 1.5%/mo enforceable.
• New York: small claims cap $10K. 25%/year usury cap.
• Texas: small claims cap $20K (highest in country). 18%/year usury cap.
• Florida: small claims cap $8K. 18%/year usury cap.
• Illinois: small claims cap $10K. 9%/year cap unless contract specifies.

Enforcement: small claims, demand letters, and beyond

For invoices in the $1,000-$15,000 range, small claims court is the most efficient enforcement path. Filing fees are typically $30-$200, no lawyer required, and most judgements are won by default when the defendant fails to appear (~60-70% of small claims judgements are by default).

Before filing, send a written demand letter — registered mail with return receipt requested. The demand letter should: (1) reference the invoice number, dates, and amount; (2) cite the late-fee clause from your contract; (3) state the running total including accrued interest; (4) give the debtor 14 days to pay; (5) state your intent to file in small claims if unpaid. About 30-40% of receivables are paid after a registered demand letter — it's a high-leverage step before going to court.

For amounts above the small claims cap or for complex disputes, file in the regular civil court (typically county or district court). Civil court requires a lawyer for most procedures, makes only economic sense for invoices above ~$25,000-$50,000 unless the dispute is simple (procedural rather than evidentiary).

Statute of limitations: written contracts typically 4-6 years (most states). Oral contracts: 2-4 years. Open accounts (running balances): 3-4 years. Once the SoL expires, you can no longer sue — write off the debt.

• Step 1 — Demand letter: registered mail, 14-day deadline. 30-40% of receivables get paid here.
• Step 2 — Small claims: cap $5K-$20K depending on state. No lawyer needed.
• Step 3 — Civil court: $25K+ or complex disputes. Lawyer typically required.
• Step 4 — Collection agency: agencies typically charge 25-50% of recovered amount. Use after small claims fails.
• Statute of limitations: 4-6 years (written contract) in most states. After SoL expires, write off.

Drafting compliant contract clauses

A defensible US B2B late-payment clause should include: (1) the rate as a percentage per month or per year, (2) when it begins to accrue (day after due date), (3) any flat compensation for collection costs, (4) consent to recover legal fees if collection requires court action, and (5) the law and venue governing disputes.

Recommended clause: "Late Payment. Past-due amounts shall accrue interest at the rate of one and one-half percent (1.5%) per month, equivalent to eighteen percent (18%) per annum, calculated daily from the day after the contractually-agreed payment date. Customer further agrees to pay all reasonable costs of collection, including attorneys' fees and court costs. This Agreement is governed by the laws of the State of [Your State], and any disputes shall be resolved in the [County] courts of [Your State]."

On every invoice, repeat a shorter version: "Payment terms: Net 30. Late fee: 1.5% per month on past-due amounts. Reasonable collection costs and attorneys' fees recoverable per contract."

• Rate: percentage per month or year. Avoid flat dollar amounts (may be voided).
• Accrual start: day after due date. Be explicit; "Net 30 grace period" is a myth.
• Collection costs: consent to recover. Strengthens enforcement when filing in court.
• Governing law: state your state. Reduces forum-shopping by debtors.
• Echo on invoice: short version on every invoice footer for visibility.